Two consecutive quarters of decline in real GDP is commonly taken to be a
recession. The National Bureau of Economic Research, a private
organization, effectively decides when recessions occur, however, and the actual
dating process is determined by judgment rather than a formal rule.

One interesting point is that there is no widespread, unique term
for periods that are not recessions. That is, we can refer to expansions
and contractions, but there is no universal pairing of ____ and recessions.

Q: The financial press often states the definition of a recession as two
consecutive quarters of decline in real GDP. How does that relate to the NBER's
recession dating procedure?

A:: Most of the recessions identified by our procedures do consist of
two or more quarters of declining real GDP, but not all of them. According to
current data for 2001, the present recession falls into the general pattern,
with three consecutive quarters of decline. Our procedure differs from the
two-quarter rule in a number of ways. First, we consider the depth as well as
the duration of the decline in economic activity. Recall that our definition
includes the phrase, "a significant decline in economic activity." Second, we
use a broader array of indicators than just real GDP. One reason for this is
that the GDP data are subject to considerable revision. Third, we use monthly
indicators to arrive at a monthly chronology.

Q: How does the NBER balance the differing behavior of employment and
output?

A: The NBER considers real GDP to be the single measure that comes
closest to capturing what it means by "aggregate economic activity." The
committee therefore places considerable weight on real GDP and other output
measures. Following the precedents established in many decades of maintaining
its business cycle chronology, however, the committee considers a wide range of
indicators of economic activity. There is no fixed rule for how the different
indicators are weighted.

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